Is economic inequality inevitable? – A socialist view

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Imagine a world of seven billion people in which 85 of the richest individuals own more wealth than the bottom half of humanity combined. Such a world is where we live.

Consider the US, where wealth inequality has skyrocketed, especially in recent years. Here the three richest people possess more wealth than the combined GDP’s of the world’s poorest 65 nations and dependent territories. Next we have the Koch brothers, Charles and David, owners of the US’s second largest privately held company (the first is Cargill), whose financing of right-wing groups like the Tea Party is well known. While they are not the richest men in the US – Bill Gates, Warren Buffet, and Oracle co-founder Larry Ellison wouldn’t let them shine their shoes – together they have a net worth of $72 billion.

Meanwhile, Seattle residents Evonne and Jose Martinez have worked all of their lives. When Evonne became ill, she lost her job as a social worker, and Jose had to take time off as a letter carrier to care for her. When their 26-year-old son needed two brain surgeries, they sold what they had to pay for his treatment and keep their home, but in the course of this tragedy, they eventually fell behind on their mortgage. Without an inkling of human compassion, JPMorgan Chase sold their home at auction and is seeking their eviction – even though Evonne and Jose are now back at work and can pay their mortgage!

Then there’s Sheldon Adelson, the Las Vegas casino magnate and Republican Party donor who in 2004 opened a one million square foot casino in Macao, China. According to the Guardian, in 2013 he increased his net worth by $14.4 billion in one year. Assuming a 40-hour week with two weeks unpaid vacation, he made $7,200,000 per hour, i.e., $2,000 per second.

Unfortunately in 2013, Larry and Flor Benes, also Seattle residents, did not fare so well. After serving ten years on active military duty plus a three-year stint in the Reserves and the National Guard, Larry developed PTSD and a total service-connected disability rating of 70 percent. Nonetheless, he then worked as a stevedore for 20 years, but was eventually laid off because of his disabilities. To survive, Flor works two jobs. In the year Sheldon Adelson made $14.4 billion, Larry Benes had no income. Bank of America is foreclosing on their home.

We are not claiming that all billionaires are moral reprobates. Our point, rather, is that there’s something terribly wrong with an economic system that allows, and even honors, such a skewed distribution of wealth.

How do the rich and their academic sycophants justify such extreme inequality? Five of their main arguments are: (1) the US is the greatest country on the planet, because each of us has the freedom and opportunity to become a billionaire (formerly, millionaire, but those days are now considered quaint); (2) the opportunity to amass enormous wealth motivates us to grow our economy; (3) wealth and poverty have always existed. Inequality is a natural phenomenon, a law of nature; (4) the rich are the job producers; without them, there would be no jobs; and (5) the rich risk their money when they invest in a business. That some capitalist become very rich is their reward for risking their capital.

Some thoughts:

(1) How well is this freedom-to-become-a-billionaire model working? In Qtr. 1, 2013, the U.S. had 442 billionaires – one out of every 701,000 U.S. residents. Do we call this a well functioning model? Is your car well functioning if it only starts one out of every 701,000 attempts to turn it on? Should we have a Lemon Law for economic systems?

Central to this ‘freedom-to-become-a-billionaire’ model is the concept of social mobility. This poses the idea that through hard work people can move up the social ladder and become future millionaires and billionaires. However, the statistics show this is a myth. A number of studies have shown there is less social mobility in the United States than in other major countries.

If we divide incomes into five brackets (or quintiles) ranging from the highest incomes (in the top quintile) to the lowest (in the bottom quintile), 70% of Americans raised in the bottom two quintiles never make it to even the middle quintile according to a Jan. 22, 2014, report from the PEW Charitable Trusts.

Further, as reported in a study by the Paris School of Economics, the richer you are, the faster your income increases. For example, between 1979 and 2012 the average income of the top 1% of Americans rose from $359 thousand to $1.0 million; the top 0.1% rose from $963 thousand to $4.7 million; and the top 0.01% rose from $2.75 million to $21.6 million.

On the other hand in the same period the average income of the bottom 90% of Americans fell from $33,563 to $30,439.

What is the significance of this American freedom-to-become-a-billionaire when it affects only 0.000143% of the population? And if this freedom is the hallmark of America’s greatness, why have only 442 of America’s 310,000,000 citizens seen fit to avail themselves of this freedom?

(2) Does the opportunity to amass enormous wealth motivate us to grow our economy? Clearly, if you “earned” $7.2 million per hour, you too would love going to work, but what about the rest of us whose jobs are dehumanizing, repetitive, and, at times, injurious? How motivated are we to go to work (assuming we can find a job)? When 60% of our population, 186,000,000 people, own only 4.2% of our nation’s wealth, is our economy maximizing its human potential, its human resources? When 186,000,000 people work not to increase their own wealth, but the wealth of the richest 442 people, how eager are we to go to work each day?

Yet despite the oppressive nature of work under capitalism and the constant barrage of advertisements telling us we are not worthy human beings unless we consume rapaciously – surrounding ourselves with the latest cars, clothes, and computers – despite all of this many people dedicate themselves to their jobs not for the money but to help others. Public school teachers working for minimal remuneration in overcrowded, under-financed classrooms commonly take money from their own pockets to buy their students school supplies and books. Firefighters risk their lives to save others, not for the money, but because it is the right thing to do. Nurses choose their profession to tend to the sick, not in the hope of becoming billionaires.

(3) Is inequality natural? The problem with the natural-law argument is the fallacy of deriving an ethical conclusion from an existing state of affairs, i.e., arguing that because something is the case, it ought to be the case. Because slavery exists (astonishingly, it’s still with us), does that make it right? Economic, social, and educational inequality exists, but this does not make it right; it makes it something we need to correct.

(4) Are the rich the job producers? What this means is the rich have the capital to invest in people, machines, and raw materials, which in turn produces jobs. The problem, however, is that the rich are getting richer, but they are not producing jobs. We hear a lot about the unemployment rate (7%), but more revealing is the underemployment rate (14.7%), which includes (a) those looking for work but who cannot find a job, and (b) those wanting a full-time job but who must settle for part-time work. It does not include those who have given up looking for work. When 14.7% of the work force is suffering, the system isn’t working.

Since the dawn of industrial capitalism we’ve seen periods when corporations flushed with mountains of cash refuse to invest, because consumers do not have the money to buy what the capitalist would like to sell. At the same time working people – desperate for food, clothing, shelter, and so on – cannot find jobs and struggle to survive. Capitalists refer to such a dislocation as the trough of a business cycle, something created in nature, beyond the control of governments, businesses, or any human agent.

It is true that business cycles are inherent to capitalism, but are they inherent to other forms of social-economic organization? The answer to this question lies in the notion of who actually creates the products we use. Under capitalism, nothing is produced unless capitalists invest money in machines, raw materials, and laborers. When the capitalists refuse to invest, the economy stops. Invested money, i.e., capital, therefore, appears as the prime mover of our social and economic order.

Things, however, are not always as they appear. Let’s pretend we suddenly find ourselves living in a world without capitalists. Could the people on such a planet survive? Without capitalists would they starve for lack of food? Die from lack of shelter? Clothing? Health care? Certainly we could imagine several scenarios – some, perhaps, frightening – but one possible outcome might involve the people cooperating rationally to plan how to provide for one another. Those who were doctors and nurses under capitalism could continue giving medical care to the infirmed; farmers could continue to grow food and feed the population; teachers could educate the people; carpenters could build shelters, etc. Rather than starve, those who worked in large factories could continue to do so by running the same machines and ordering the needed raw materials the same as they did when the capitalist owned the factories. In other words, the workers who created the products and services we used under capitalism could continue to do so without capitalists.

Yet without capital how would the workers in a factory pay for the raw materials produced in other factories? The people living in our capitalist-free world could determine these arrangements for themselves. Here is one possible approach: Suppose the people democratically decide the society needs wool and cotton clothing. First, they’d make sure that those producing raw wool and cotton for this clothing have everything they need to do so, that these producers have food, clothing, shelter, and so on, along with the land and equipment needed to produce wool and cotton, with the understanding that these producers will in turn supply their raw wool and cotton to clothing factories at no charge.

Much can be said about exactly how the people might decide to forge these new social and economic arrangements (and I will touch on this below), but the critical point is that nothing logically prohibits the people from replacing an economy based on the random self-interests of a handful of very rich capitalists with one based on rational democratic planning done by and for all the people.

Capitalists and capital may hire wage labor, and to that extent they are job producers, but they don’t produce the products and services we use. Workers produce these. Andrew Carnegie and J.P. Morgan may have provided the capital to hire workers, but they didn’t build the railroads; the workers did. The workers laid the tracks and drove the spikes. Andrew Carnegie and J.P. Morgan merely collected the profits without dirtying their hands.

(5) Is wealth simply a reward for risk? Often, especially during an upswing in a business cycle, capitalists invest (or gamble) money to replace old equipment or to start entirely new business ventures. At other times, when the economy is stagnant but corporations are sitting on lots of cash, CEO’s might decide to invest (or gamble) their money in the stock and derivatives market. In both cases these capitalists are risking their money. Within the logic of capitalism, it makes perfect sense that those who risk their money should reap the rewards, or suffer the losses in case their bets go south. The problem of course occurs when the capitalists lose their bets, and working people end up footing the bill, as in 2008 when the government bailed out the banks with our tax dollars.

The issue, then, is whether this form of social economic organization, i.e., capitalism or growth-through-gambling, is the best way to improve the lives of all members of society. For those who believe capitalism is optimal, they need to explain why the wealth and income disparities between rich and poor are greater today than at any time in the nearly 500 years of capitalist development.

Ownership and control of the economy:

But if capitalism only helps the 1% while the 99% fall deeper into poverty and debt, what is the alternative?

A first step to a more just and healthy society, one that prizes the growth and development of all its members, is a redistribution of wealth. Why should some – like the Koch brothers, who inherited their father’s oil business – start life with an insurmountable advantage over those who are born into poverty, despair, and deprivation? Why should someone, like Stephen A. Cohen, the hedge fund manager under investigation for insider trading, have the wherewithal to buy a Picasso for $155 million to put into his recently purchased $60 million mansion in the Hamptons, while others live without shelter, let alone art?

A second, and decisive, step to a more wholesome society involves the collective and democratic control of the redistributed wealth. Consider housing. Nearly all of us, if we wish to live in a home, must arrange a mortgage loan with a bank, the terms of which are set entirely by the bank for the profit of the bank. We, as buyers of the loan, have no input. To correct this, should we put the banks under public ownership? Yes, but in itself public ownership only shifts bank ownership from private hands to government bureaucrats. It does not address the question of who controls the banks and who decides their social purpose.

What is needed instead is a revolutionary change in the way our society is structured, away from a class-stratified society where the few decide for the rest of us how our resources are allocated and distributed towards a classless society where the people decide democratically how our social wealth is utilized, one in which the unsustainable accumulation of profit for the few is proscribed and the amelioration of all is cherished. We call such a society “Socialist.”

Socialism:

Although it is very difficult to predict how a future socialist society would be organized, since we do not know the historical circumstances that would lead to such a possibility, we can nonetheless imagine that certain principles would exist. The first priorities would be to provide food, clothing, shelter, healthcare, education, transportation, leisure time, etc. These would be embraced as inalienable human rights available to all.

Secondly, each person would have a democratic voice in matters involving the development of the individual and society, perhaps giving those most closely affected by an issue a louder voice (e.g., giving major influence to bakery workers on issues involving the bakery where they work, but less, or perhaps no, say in a bakery operating 1000 miles away). Related to this is the requirement that socialist economies involve democratic planning. Growth-through-gambling won’t cut it. Especially daunting will be global issues such as climate change. Do we continue to build cars or transition to mass transportation? How is this done? Who decides? These will be questions for future socialist generations to answer.

Growing wealth inequality is a sign of an economic system in decay. Given the immiseration of the majority of the world’s population, and given the impending catastrophic effects of climate change, we have two choices before us: fight to overthrow capitalism and replace it with socialism, or do nothing and sink into fascism. For all of us suffering under the yoke of capitalism, we choose to fight.